Proper function of the immune system requires the development of a B cell repertoire that recognizes a wide range of foreign antigens yet remains self-tolerant. To this end, B cell development proceeds via an ordered series of events in which the immunoglobulin (Ig) heavy and light chains are sequentially rearranged and tested for functionality and self-reactivity. At the large pre-B cell stage, cells that have successfully rearranged an Ig heavy chain gene undergo a proliferative expansion in response to signals from IL-7 and the pre-BCR. This serves to expand the pool of cells expressing any given functional heavy chain. Proliferation eventually ceases as the cells differentiate to the small pre B stage and lose responsiveness to IL-7. At this stage, both pre-BCR signals and the absence of IL-7 signaling promote Ig light chain rearrangement. This transition is under tight control, and its disruption leads to both immunodeficiency and malignancy in mice and humans. Thus, understanding the molecular mechanisms that regulate these early stages of B cell development is likely to have important therapeutic implications for these potentially fatal diseases. The activation of mature peripheral B cells is limited by ITIM containing inhibitory receptors, which act primarily through the phosphatases SHIP or SHP-1. While SHIP is known to act in pre-B cells as well, a role for SHP-1 dependent inhibitory receptors in earlier stages of B cell development has not been explored. Several members of this family are expressed by pre-B and immature B cells in the bone marrow. Intriguingly, SHP-1 has been shown in B cell lines and other cell types to inhibit several critical components of IL-7 and pre- BCR signaling pathways. Progenitor B cell lines from mev/mev mice show signs of impaired ability to differentiate and increased response to cytokine signaling. Of further interest, a mutant form of the inhibitory receptor CD22 that lacks the ITIM region has recently been shown to have a pathogenic role in B cell progenitor leukemia. Our preliminary data show that overexpression of gp49B, an inhibitory receptor known to act through SHP-1 in other cell types, can limit the proliferation or survival of pre-B cells in IL-7. Thus, we hypothesize that SHP-1 coupled inhibitory receptors restrain the expansion of large pre-B cells and/or promote their differentiation into small pre-B cells. To test this hypothesis, we will determine the role of SHP- (Aim 1) and SHP-1 coupled inhibitory receptors (Aim 2) in the proliferation and differentiation of pre-B cells. We will also determine which components of IL-7 and pre-B signaling pathways are targeted by inhibitory receptors and phosphatases (Aim 3). These studies will shed light on a previously unexplored mechanism by which the transition from large pre-B to small pre-B cells is regulated and may illuminate novel therapeutic targets for diseases caused by disruption of this process, including immunodeficiency and malignancy.